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* Risk of supply shortages on some lines in year 2019-20
* May seek extra production from suppliers in other regions
* Full year 2019-20 guidance unchanged
* AB Foods shares down 2%
* Shares in Next, M&S also lower
(Adds detail, finance chief comments, shares)
By James Davey
LONDON, Feb 24 (Reuters) - Primark owner Associated British
Foods warned on Monday there was a risk of shortages of
some clothing lines later this year if delays in factory
production in China are prolonged because of the coronavirus.
The virus has killed 2,442 and infected 76,936 people in
China, and slowed growth in the world's second largest economy.
AB Foods, which sources more than 40% of Primark's product
from China, said it typically builds inventories in advance of
Chinese New Year, meaning it is well stocked for several months
and does not expect any short-term impact.
The group, which maintained its overall financial guidance
for the full 2019-20 year, said it was working closely with its
suppliers in China to assess the impact of the virus on their
factories and supply chains and their ability to fulfil its
current orders.
"If delays to factory production are prolonged, the risk of
supply shortages on some lines later this financial year
increases," it said.
"We are assessing mitigating strategies, including a step up
in production from existing suppliers in other regions."
Shares in AB Foods, the majority of which are owned by the
family of CEO George Weston, were down 2% at 0906 GMT, paring
gains over the last year to 9.5%.
Shares in British clothing rivals Next and Marks &
Spencer were down 2.5% and 3.8% respectively.
Finance director John Bason said Primark was talking to
suppliers in Bangladesh, Cambodia, Vietnam, Turkey and eastern
Europe to fill the potential gap, although he said some items
manufactured in China could not be replicated.
"There are in accessories or whatever, areas like that, that
China is very good at that are harder to source from
elsewhere...So I'm not guaranteeing that we can replace all of
the shortfall from China," he told Reuters.
AB Foods also owns major sugar, grocery, ingredients and
agriculture arms. Several of its food businesses have operations
in China.
It said the China sugar processing campaign was completed in
January before the coronavirus outbreak developed significantly.
However, its AB Mauri, AB Agri and Ovaltine factories are
operating at reduced capacity because of labour and logistics
constraints caused by the virus outbreak.
Bason said the impact was not material to the overall group.
For its first half to Feb. 29, AB Foods forecast sales and
operating profit ahead of the previous year.
Primark's first-half sales were forecast to be up 4.2%, with
like-for-like sales level. British sales were forecast up 3.0%,
with sales in the eurozone expected to be up 5.3%.
The group's outlook for the full-year was unchanged, with
progress expected, on both a reported and a lease-adjusted
basis, in adjusted earnings per share (EPS).
Prior to Monday's update analysts were on average
forecasting a full-year EPS of 147.2 pence, according to
Refinitiv data, up from 137.5 pence made in 2018-19.
(Reporting by James Davey; editing by Kate Holton, Paul Sandle
and Barbara Lewis)
